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When a Government withdraws legal tender rights of any denomination of currency, it is known as demonetisation. In simple terms, new currency replaces the old money. In terms of value, RBI ( Reserve Bank of India), in its annual report of 31 March 2016, stated that the total notes in circulation valued 16.42 lakh crore of 500 and 1000 banknotes. According to a press release by RBI dated 28 November 2016, the total amount of old notes (which are now withdrawn) of value 8.11 lakh crore had been deposited by the customers till 27 November 2016. Banks started accepting the deposits on 10 November, but within 18 days, around half of the money had been received by the banks.

2016 is not the first instance of Demonetisation in India. It happened before 2016;

  • In the year 1946, RBI had demonetised 1000 and 10,000 currency notes which were in circulation.

  • In the year 1954, the Government introduced new currency notes of 1000, 5000, and 10,000.

  • In 1978, the Moraji Desai Government demonetised 1000, 5000, and 10,000 to curb illegal transactions and anti-social activities.

Whatever happens in a country first affects its ordinary people. Demonetisation had affected ordinary people more than black money holders. But it's a good step towards the future. It might not have stopped the corruption, but it had helped in reducing it to some extent. Demonetisation also helped in removing fake currencies from the economy.


1. The aim is to purge black money from the economy.

2. The circulation of cash in India is directly connected with corruption, controlling crime and reducing cash and cashless transactions.

3. Prevent cash from being used for terror funding or terrorist activities etc.


  • Increased savings- By this, people will deposit their money in the bank rather than at home. It helps them to save more.

  • Lower lending rates – By this demonetisation, money shifted from people to banks and financial institutions. It leads to better circulation of money. This will lead to a lower cost of funds which translates into lower lending rates.

  • Better economy – As more cash is with the banks, there is a higher circulation of money in the economy. The Government receives more taxes and can undertake more development projects. This leads to a better-performing economy.

  • Curbing anti-social activities – Usually, cash is the mode of transaction for anti-social activities. Thus demonetisation denies these activities. It also forces anti-social units to find ways to get rid of the old notes. As a result, there is better control over the unaccounted money in the economy.

  • Reducing counterfeit currency notes – Bank checks if the old messages are genuine or fake before accepting them. Thus, this allows the Government to weed out counterfeit notes from the market.

Written by-

Harini Mothe


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